Seven Tips to Keep your Cash Flow on Track
By Julie King | June 30, 2010
Like it or not, the HST must now be charged on most sales in Ontario and BC. The new tax will affect business systems and more importantly, it may impact your cash flow.
On the positive side, businesses in Ontario and BC should get more money back as the provincial portion can now be claimed as an input tax credit. However, if your business previously charged GST only you will want to make sure that you don't treat the extra tax collected as new revenue. Remember that you will need to have these funds on hand to remit to the government.
To help you manage the change, consider these seven tips on how to prepare for the HST and improve your cash flow management from Mike Michell, the national director of small business at RBC.
- Manage your projections. With the HST coming into effect, your cash flow projections may change. Some items that were not taxable before may now be taxable and visa versa. Consider how that will affect your business and plan accordingly.
- Update your systems. You will need to ensure that all business systems, including point-of-sale terminals, cash registers, computer software, websites, invoices, sales receipts, purchase orders and expense reports are charging the correct amount of tax.
- Diversify your payment options. If you offer clients more ways to pay, such as electronic or debit and credit cards at point of sale. More options make it easier for customers to pay, which often translates to faster access to cash flow.
- Get paid sooner. If you currently give customers 20, 30 or more days to pay, try to reduce that time to as close to zero as possible. Take the time to understand the payment cycles for any invoice that your customers and suppliers receive and try to condense it down as much as possible. Adding a discount for early payment is a common way to get paid faster.
- Pay your bills electronically. When you send a cheque, there is an uncertainty as you never know when it will be cashed. Paying suppliers, employees and purchases electronically adds certainty, as it lets you know exactly when the money will be taken out of your account.
- Plan your payments ahead. You can set-up payments to suppliers on a recurring or delayed-payment basis ahead of time. Don't forget to take advantage of discounts for early payment if they are offered by your supplier.
- Be prepared. Take steps to have a contingency plan to cover cash flow shortages before they occur. Common ways to manage this are to set-up a contingency fund in an account to cover an unexpected short fall or obtain a line of credit or overdraft.